Commission recommends to the Council to address an early warning to France

With a view to avoiding a breach of the 3.0% of GDP deficit reference value, the Commission recommends to the Council to send an early warning to France. The Commission also proposes to the Council to make its decision and the full recommendation public. The Commission decision is based on the Commission autumn forecast published last week ( IP/02/1659), which indicates that the general government deficit in France could reach 2.7% of GDP in 2002 and 2.9% in 2003. The early warning procedure is set out in Regulation 1466/97 of the Stability and Growth Pact (SGP) and in line with Article 99(4) of the Treaty. By activating this procedure the Commission is, like in the cases of Germany and Portugal earlier this year, honouring its commitments laid down in the European Council resolution on the Stability and Growth Pact for a strict, timely and effective functioning of the Pact.

According to the Commission's autumn forecast (IP/02/1659) the general government deficit in France is estimated to rise to 2.7% of GDP in 2002. This would be clearly above the objective of 1.4% of GDP set for the government deficit in that year in the 2001 update of the stability programme. It is also very close to the 3% of GDP deficit threshold laid down in the Treaty.

The slowdown in the economic activity could explain about one half of this slippage. The other half is due to deterioration in the underlying budgetary position, as also identified by the French government. The latter is mainly attributed to overruns in central government and health expenditures. The cyclically-adjusted budgetary position is expected to reach 2.7% of GDP in 2002, which is clearly a too high level. Public finance developments in 2002 thus represent a significant divergence with respect to the plans of the 2001 update of the stability programme.

For 2003 the French authorities are currently projecting a stabilisation of the general government deficit. The Commission forecasts an increase in the deficit to 2.9% of GDP despite an acceleration of GDP growth from 1.0% in 2002 to 2.0% in 2003. The cyclically-adjusted budgetary position is also deteriorating from 2.7% of GDP in 2002 to 2.8% of GDP in 2003 according to the Commission's estimates.

There is therefore, in the Commission's view, a clear risk that the deficit in 2003 might breach the 3% of GDP threshold. With a view therefore to prevent the occurrence of an excessive deficit the Commission recommends to the Council to address an early warning to France. The Commission also proposes to the Council to make its decision and the full recommendation public.

By activating the early warning procedure, the Commission is acting consistently with the Commission statement following the Ecofin Council on 12 February 2002: 'the Commission will use the early-warning mechanism if and when the budgetary positions of Member States diverge significantly from the medium-term budgetary objective or the adjustment path towards it".